SINGAPORE - Investors should beware of trading binary options on unregulated platforms, the Monetary Authority of Singapore warned in a statement on Tuesday (March 14).

A binary option is a type of contract where an investor predicts whether the price of the underlying instrument - a stock or commodity - will go over or stay below a specified price.

Unregulated platform providers often try to lure investors with promises of low risks and high return. They use marketing catchphrases such as "trading with zero risk", "trading amounts of as little as $1", and "profit payout of 500% per trade".

"Contrary to promises of low investment risks with exceptionally high returns, binary options are in fact, speculative and risky investment instruments," the central bank said.

"Moreover, many of these unregulated binary options trading platforms are fraudulent and based outside Singapore. Investors who choose to trade with these platforms are unlikely to recover any monies lost."

A similar warning was issued by the police in December after the Commercial Affairs Department received more than 30 reports from investors who had lost over US$1 million to unregulated binary option investments.

But even regulated investments will carry risks, the MAS stressed.

"Before making any investment decisions, investors should think carefully about the claims being made about the products offered.

"If the touted ease of making significant profits sounds too good to be true, it probably is."